Controversial - Capital Gains Tax is Wrong

The dilemma and a solution:

I know it's a controversial idea, that capital gains tax is wrong, because it implies we should not (or could not) tax the rich without capital gains tax. For one, the current installment of capital gains tax is in fact hypocritical to that goal. It is a method by which the wealthy can pay a flat 15% tax on all income derived from long term capital gains, and 0% on the first $40,400/year (2021). From the onlookers perspective that could be seen as an advantage to all: zero tax up to a livable income and a reduced tax for the rest as incentive to invest in the economy. But there is a flaw in this thinking. Investing back into the economy requires much more than investing in the most profitable startup, S&P 500 company, or profiting off of futures markets where one can earn capital gains betting against the growth of the economy.

Capital gains as a concept is troublesome to start with, because the money being used to invest is money that had to be earned prior to entering the stock market, even if that happened generations ago. That money was taxed as income and upon being invested was taxed again as the government's reward. For what, I don't know. The dilemma the government faces is that they need money but are separated from investing markets, even though their expenses to the people and businesses are themselves an investment in the future of our society. With all the industry bail outs over the last decade or two, what financial returns does the government get from such a hefty investment? None. At least not without first going through a myriad of middlemen who aggressively fight for their right to profit and minimize their tax burden. The government that is supposed to provide a service to the nation is forced into being a deplorable tax collector. It doesn't help that the government is known to abuse or waste tax payer money.

But in modern times a new conflict arose with the rising tide of cyptocurrency. Trading and investing is common, but the problem is mostly pertinent to everyday use. As legally defined assets, virtual currencies are taxed on their appreciated value upon realization of that value (any exchange, purchase or even swap, pending clarity on the latter). The measure of discovering the cost basis of a fractional asset requires diligent notation of every purchase of cryptocurrency, the cost, the fees and the date (to determine short vs long term gains) and than the "sale" of that asset, the date, the value, the fee and to which original purchase it applies to Than you are required to separate into two categories: long term and short term, which get taxed differently. In order to determine the cost-basis of 1 millionth of a bitcoin, or satoshi, transferred as a purchase, one has to notate the total "proceeds", determine the originating transaction by searching an index, and subtract the cost from the proceeds to determine the taxable gains of this single event. This is required for every single cup of coffee you buy. The blockchain is ideal for tracking the origination of the fraction being exchanged, but its usefulness stops there. It doesn't compile, calculate or print, and even if it could it would need a different program for every differing jurisdiction of every country.

There has to be a solution that doesn't result in breaking the law or needing complex software just to spend your digital money. Of course, the government has no interest in opening this option up since crypto users are welcome to use digital USD in the form of stablecoins, which don't generate gains on their own, but that comes with limitations and expenses that thousands of other cryptos are not subject to. For example, Nano, a fee-less deflationary cryptocurrency, offers faster, cheaper transaction technology, but over 2600 pages of tax law require tremendous work in an effort to be more efficient.

THE SOLUTION, however we arrive at it, is going to involve altering tax laws and definitions, altering the methods of tax collection, or (my personal favorite) reinventing the taxation system. I believe this can and should begin in the form of staking, which I'll explain at the end.

The low and middle income population largely store their value in depreciating accounts that earn none or far less than the Fed's target inflation rate of 2% per year. The wealthy reinvest their money into the same incestuous economy that only shares a portion of its wealth with the surrounding community, and does so exclusively for the generation of profit that further enriches the upper economy by the labor and debt of the working class and impoverished. In both cases there is a form of stagnation of value. Most value is isolated in a depreciating account or it's appreciating at the behest of a noninclusive ecosystem. By putting our money in banks, the bank only needs 10% of the funds on hand because 90% is stagnant. This affords them the opportunity to invest the taxpayers' unspent funds for their profit and growth. According to the 2020 FinCEN Files, these institutions process trillions of dollars of dirty money from international criminal organizations and corrupt tycoons, profiting from them as well as the common man for the sole purpose of providing access to the greater economy. Fortunately, we are no longer in desperate need of their exploitative services. With global access to global markets with any connected device and possibly a VPN, anyone can securely store funds, transact, invest, lend and borrow, along with a variety of more complex financial tools including insurance. We can now mint our own secure currencies, tokenize intangible value such as a public service or a meme, and stake funds without sacrificing custody.

Staking is the financial equivalent of one's emotional stake in their hometown, or their commitment to their bank account determined by the minimum account balance. What if taxation could be alleviated and replaced with staking a minimum balance in the government? Just enough for them to make a zero-risk investment and pocket the gains for the public good, leaving citizens with a sizeable bank account tax-free. Spending unnecessarily is a wasteful way to promote the movement of value and as I mentioned investing is an exclusive economy that affects the population unevenly. Lending is a productive method of promoting value exchange and it provides a zero-risk investment so long as collateral is provided by the borrower,. There is no incentive for this unless there is growth in assets that are more valuable as collateral than liquid cash. So it is in the economy's best interest to promote growth, incentivizing the saved tax dollars to go back into the economy in a productive manner, further incentivized by the elimination of capital gains taxation. With a more productive economy and profitable system of finance, taxes can be raised without increasing personal expense and the overall economy will be more prosperous.

Staking is the financial equivalent of one's emotional stake in their hometown, or their commitment to their bank account determined by the minimum account balance. What if taxation could be alleviated and replaced with staking a minimum balance in the government? Just enough for them to make a zero-risk investment and pocket the gains for the public good, leaving citizens with a sizeable bank account tax-free. Spending unnecessarily is a wasteful way to promote the movement of value and as I mentioned investing is an exclusive economy that affects the population unevenly. Lending is a productive method of promoting value exchange and it provides a zero-risk investment so long as collateral is provided by the borrower,. There is no incentive for this unless there is growth in assets that are more valuable as collateral than liquid cash. So it is in the economy's best interest to promote growth, incentivizing the saved tax dollars to go back into the economy in a productive manner, further incentivized by the elimination of capital gains taxation. With a more productive economy and profitable system of finance, taxes can be raised without increasing personal expense and the overall economy will be more prosperous.

A preliminary design concept for an official crypto-powered tax-by-staking application: Staking app with an algorithm-weighted interest rate (never asking for income information) that always returns less overall for smaller contributions and more overall for greater contributions, but a heavier percentage on the lower end and a smaller one on top, determined by the maximum spread possible to meet both these conditions.

Go ahead, steal this idea... or send me donations to keep working on this idea!

ZEC
t1dt5p1VWMB5gkLJ48o2cTh4mPS4oyGNuUD

NANO
TBD

BTC
TBD